STANDARD STATEMENT OF WORK FOR FINANCIAL AUDITS OF ACCOUNTABLE ENTITIES _part2 pdf

a. list all standard and program-specific provisions contained in the compact and related agreements that cumulatively, if not observed, could have a direct and material effect on the fund accountability statement; b. assess the inherent and control risk that material noncompliance could occur for each of the compliance requirements listed in 1.a. above; c. determine the nature, timing and extent of audit steps and procedures to test for errors, fraud, and illegal acts that provide reasonable assurance of detecting both intentional and unintentional instances of noncompliance with the compact and related agreement terms and applicable laws and regulations that could have a material effect on the fund accountability statement. This must be based on the risk assessment in 1.b. above; and d. prepare a summary audit documentation file that adequately identifies each of the specific compliance requirements included in the review, the results of the inherent, control, and combined (detection) risk assessments for each compliance requirement, the audit steps used to test for compliance with each of the requirements based on the risk assessment, and the results of the compliance testing for each requirement. The summary audit documentation file must be cross-indexed to detailed audit documentation files that adequately support the facts and conclusions contained in the summary audit documentation file. 2. Determine if payments have been made in accordance with the compact and related agreement terms and applicable laws and regulations. 3. Determine if funds have been expended for purposes not authorized or not in accordance with applicable agreement terms. If so, the auditor must identify these costs as questioned in the fund accountability statement. 4. Identify any costs not considered appropriate, classifying and explaining why these costs are questioned. 5. Determine whether assets, whether directly procured by MCA-(country name) or directly procured by MCC for MCA-(country name)’s use, exist or were used for their intended purposes in accordance with the compact and related agreements. Ensure that assets are marked in accordance with agreement requirements. If not, the cost of such assets must be questioned. 6. Determine whether any technical assistance and services, whether procured by MCA- (country name) or directly procured by MCC for MCA-(country name)’s use, were used for their intended purposes in accordance with the compact and related agreements. If not, the cost of such technical assistance and services must be questioned. 7. Determine if the amount of cost-sharing funds was calculated and accounted for as required by the compact and related agreements or applicable cost principles. 8. Determine if the cost-sharing funds were provided according to the terms of the compact and related agreements. And quantify any shortfalls. 9. Determine whether those who received services and benefits were eligible to receive them. Revised January 2006 12 This is trial version www.adultpdf.com 10. Determine whether MCA-(country name)’s financial reports (including those on the status of cost-sharing contributions) and claims for advances and reimbursement contain information that is supported by the books and records. F. Follow-Up on Prior Audit Recommendations The auditors must review the status of actions taken on findings and recommendations reported in any pre-award review and prior audits of MCC-funded programs. Chapter 4 of the U.S. Government Auditing Standards under the section entitled Considering the Results of Previous Audits and Attestation Engagements, states: "Auditors should consider the results of previous audits and attestation engagements and follow up on known significant findings and recommendations that directly relate to the objectives of the audit being undertaken.” As well, the Chapter states, “Auditors should use professional judgment in determining (1) prior periods to be considered, (2) the level of work necessary to follow up on significant findings and recommendations that affect the audit, and (3) the affect on the risk assessment and audit procedures in planning the current audit.” They must do this to determine whether the auditee has taken timely and appropriate corrective actions. Auditors must report the status of uncorrected material findings and recommendations from any pre-award survey and prior audits that affect the financial statement audit. The auditors must review and report on the status of actions taken on prior findings and recommendations in the summary section of the audit report. The auditors must refer to the most recent audit report for the same award (for a follow-up audit), or other MCC-funded awards and any pre-award survey (for an initial audit). When corrective action has not been taken and the deficiency remains unresolved for the current audit period and is reported again in the current report, the auditors need to briefly describe the prior finding and status and show the page reference to where it is included in the current report. If there were no prior findings and recommendations, the auditors must include a note to that effect in this section of the audit report. G. General Purpose Financial Statements Auditors must examine MCA-(country name)’s general purpose financial statements on an organization-wide basis if an indirect cost rate needs to be audited, 4 or if MCC specifically requests that the general purpose financial statements be audited. The audit must be performed in accordance with generally accepted auditing standards of the American Institute of Certified Public Accountants (AICPA). The objective of this audit is to express an opinion on whether those statements present fairly, in all material respects, MCA-(country name)’s financial position at year-end, and the results of its operations and cash flow for the year then ended, in conformity with generally accepted accounting principles. H. Indirect Cost Rates [If MCA-(country name) does not have an indirect cost rate authorized by MCC, this fact must be disclosed in the report.] The auditors must determine the actual indirect cost rates for the year if MCA-(country name) has 4 Where indirect costs are authorized, an audit of the general purpose financial statements is needed to ensure that all costs have been correctly included in the indirect cost rate calculation. Revised January 2006 13 This is trial version www.adultpdf.com used provisional rates to charge indirect costs to the MCC-funded agreement. The audit of the indirect cost rates must include tests to determine whether the: 1. distribution or allocation base includes all costs that benefited from indirect activities, 2. distribution or allocation base is in compliance with the governing MCC Negotiated Indirect Cost Rate Agreement (NICRA), if applicable, 3. indirect cost pool includes only costs authorized by the compact and related agreements and applicable cost principles, 4. indirect cost rates obtained by dividing the indirect cost pool by the base are accurately calculated, and 5. costs included in this calculation reconcile to the total expenses shown in MCA-(country name)’s audited general-purpose financial statements. The results of the audit of the indirect cost rate must be presented in a schedule of computation of indirect cost rate (see Example 6.3 the MCC Audit Guidelines). This schedule must contain: (1) a listing of costs included in each indirect cost pool, (2) the distribution base, and (3) the calculation and the resultant indirect cost rate. The costs in the schedule must reconcile to the total expenses shown in MCA-(country name)’s general purpose financial statements. U.S. Office of Management and Budget (OMB) Circular A-122 provides additional guidance on allocation of indirect costs and determination of indirect cost rates. I. Other Audit Responsibilities The auditors must perform the following steps: 1. Hold entrance and exit conferences with MCA-(country name). The MCC country representative and MCC Inspector General must be notified of these conferences in order that their representatives and any other MCC representatives that have an interest may attend. 2. During the planning stages of an audit, communicate information to the auditee regarding the nature and extent of planned testing and reporting on compliance with laws and regulations and internal control over financial reporting. Such communication must state that the auditors do not plan to provide opinions on compliance with laws and regulations and internal control over financial reporting. 5 Written communication is preferred. Auditors must document the communication in the audit documentation files. 3. Institute quality control procedures to ensure that sufficient competent evidence is obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit. While auditors may use their standard procedures for ensuring quality control, those procedures must, at a minimum, ensure that: • audit reports and supporting audit documentation files are reviewed by an auditor, 5 The auditors only express an opinion on the fund accountability statement, and the indirect cost rate and general purpose financial statements, if applicable, as indicated in Chapter 3 of the MCC Audit Guidelines. Revised January 2006 14 This is trial version www.adultpdf.com preferably at the partner level, who was not involved in the audit. This review must be documented in the audit documentation files; • all quantities and monetary amounts involving calculations are footed and cross- footed; and • all factual statements, numbers, conclusions and monetary amounts are cross-indexed to supporting audit documentation files. 4. Ascertain whether MCA-(country name) ensured that audits of its Covered Providers were performed to ensure accountability for MCC funds passed through to the Covered Providers (see paragraph 1.6 of the MCC Audit Guidelines). If audit requirements for Covered Providers were not met, the auditors must disclose this in the auditor's report on the fund accountability statement and consider qualifying their opinion. 5. Obtain a management representation letter in accordance with AICPA SAS No. 85 (AU333), SAS No. 89, and SAS No. 99 signed by MCA-(country name)’s management. See Example 4.1 of the MCC Audit Guidelines for an illustrative management representation letter. V. AUDIT REPORTS The audit firm must submit one hard copy and one electronic copy (in .pdf format) of the final audit report and any management letter to the MCC Inspector General. In turn, the MCC Inspector General will incorporate the audit firm’s report into an audit report issued by the MCC Inspector General which report will include any Inspector General recommendations addressed to the MCC. To make it easier for audit firms to comply with the MCC Audit Guidelines, the format and content of the audit reports must follow the illustrative reports in Chapter 7 of the MCC Audit Guidelines. The audit report must specify the correct award number of each award covered by the audit. The report must contain: A. a title page, 6 table of contents and a transmittal letter and summary which includes: (1) a background section with a general description of the MCC-funded programs audited, the period covered, the program objectives, a clear identification of all entities mentioned in the report, a section on the follow-up of prior audit recommendations, and whether MCA- (country name) has a provisional indirect cost rate authorized by MCC; (2) the objectives and scope of the financial audit, and a clear explanation of the procedures performed and the scope limitations, if any; (3) a brief summary of the audit results on the fund accountability statement, questioned costs, internal controls, compliance with the compact and related agreement terms and applicable laws and regulations, indirect cost rates, status of prior audit recommendations, and, if applicable, MCA-(country name)’s general purpose financial statements on an organization-wide basis; (4) a brief summary of the results of the review of cost-sharing contributions; and (5) a brief summary of MCA-(country name)’s management comments regarding their views on the audit results and findings. B. the auditor's report on the fund accountability statement, identifying any questioned costs not fully supported with adequate records or not eligible under the terms of the compact and 6 Closeout audits must specify they are closeout audits on the title page. A closeout audit is an audit for an award that expired during the period audited. Revised January 2006 15 This is trial version www.adultpdf.com related agreements. The report must be in conformance with the standards for reporting in Chapter 5 of the U.S. Government Auditing Standards and must include: 1. The auditor's opinion on whether the fund accountability statement presents fairly, in all material respects, program revenues, costs incurred, and assets and technical assistance directly procured by MCC for the audited period in accordance with the terms of the compact and related agreements and in conformity with generally accepted accounting principles or other basis of accounting. This opinion must clearly state that the audit was performed in accordance with U.S. Government Auditing Standards or specific alternative standards, if applicable (see paragraph 2.9.d of the MCC Audit Guidelines). Any deviations from these standards, such as noncompliance with the requirements for continuing professional education and external quality control reviews, must be disclosed (See Example 7.1.A of the MCC Audit Guidelines). 2. The fund accountability statement identifying the program revenues, costs incurred, and assets and technical assistance directly procured by MCC for the audited period. The statement must also identify questioned costs not considered eligible for reimbursement and unsupported, if any, including the cost of any assets and technical assistance directly procured by MCC whose existence or proper use in accordance with agreements could not be verified. All questioned costs resulting from instances of noncompliance with the compact and related agreement terms and applicable laws and regulations must be included as findings in the report on compliance. Also, the notes to the fund accountability statement must briefly describe all questioned costs and must be cross-referenced to any corresponding findings in the report on compliance (see Example 6.1 of the MCC Audit Guidelines). All questioned costs in the notes to the fund accountability statement must be stated in U.S. dollars. The U.S. dollar equivalent must be calculated at the exchange rate applicable at the time the local currency was disbursed to MCA-(country name) by MCC. 3. Notes to the fund accountability statement, including a summary of the significant accounting policies, explanation of the most important items of the statements, the exchange rates during the audit period and foreign currency restrictions, if any. In addition, a note to the fund accountability statement must state whether any interest on MCC-provided funds was returned to MCC or otherwise used in accordance with the terms of the compact and related agreements. C. a report on the auditor's review of the schedule of cost-sharing contributions. The report must follow the guidance in the AICPA Statements on Standards for Attestation Engagements, Attestation Standard (AT) for review reports AT100.64. The report must include: 1. A review report on the cost-sharing schedule. This review report must state that the review was conducted in accordance with AICPA standards. It must also explain that a review is more limited in scope than an examination performed in accordance with AICPA standards, and state that an opinion on the schedule is not expressed. The report must identify questioned costs related to the provision of, and accounting for, cost-sharing contributions, with a reference to the corresponding finding in the report on compliance. The report must provide negative assurance with regard to the provision of, and accounting for, cost-sharing contributions for items not tested (see Examples 7.6.A through 7.6.D of the MCC Audit Guidelines). Revised January 2006 16 This is trial version www.adultpdf.com 2. The cost sharing schedule identifying questioned costs (see Examples 6.2.A and 6.2.B or the MCC Audit Guidelines). Cost-sharing contributions that are unreasonable, prohibited by the compact and related agreements or applicable laws and regulations, or not program related are ineligible. Cost-sharing contributions that lack adequate documentation or do not have required prior approvals or authorizations are unsupported. 3. The cost-sharing schedule identifying the budgeted amounts required by the compact and related agreements, 7 the amounts actually provided, and any cost-sharing shortfalls (see Example 6.2.B of the MCC Audit Guidelines). 4. Notes to the cost sharing schedule that briefly explain the basis for questioned costs and shortfalls, if applicable. The notes must be cross-referenced to the corresponding findings in the report on compliance. D. the auditor's report on internal control. The auditor's report must include as a minimum: (1) the scope of the auditor's work in obtaining an understanding of the internal controls and in assessing the control risk, and; (2) the reportable conditions, including the identification of material weaknesses in MCA-(country name)’s internal controls. Reportable conditions must be described in a separate section (see paragraphs 5.2 through 5.4 of the MCC Audit Guidelines). This report must be made in conformance with SAS No. 60 and the standards for reporting in Chapter 5 of U.S. Government Auditing Standards. Nonreportable conditions must be communicated to MCA-(country name) in a separate management letter which must be referred to in the report on internal controls and sent with the audit report (see Examples 7.2.A and 7.2.B of the MCC Audit Guidelines). E. the auditor's report on MCA-(country name)’s compliance with the compact and related agreement terms and applicable laws and regulations related to MCC-funded programs. The report must follow the guidance in SAS No. 74. Material instances of noncompliance must be described in a separate section (see paragraphs 5.2 through 5.4 of the MCC Audit Guidelines). Nonmaterial instances of noncompliance must be communicated to MCA- (country name) in a separate management letter, which must be sent with the audit report (see Examples 7.3.A and 7.3.B of the MCC Audit Guidelines). All questioned costs resulting from instances of noncompliance must be included as findings in the report on compliance. Also, the notes to the fund accountability statement that describe questioned costs must be cross-referenced to any corresponding findings in the report on compliance. The auditor's report must include all conclusions, based on evidence obtained, that a fraud or illegal act either has occurred or is likely to have occurred. This report must include an identification of all questioned costs, if any, as a result of fraud or illegal acts, without regard to whether the conditions giving rise to the questioned costs have been corrected and whether MCA-(country name) does or does not agree with the findings and questioned costs. In reporting material fraud, illegal acts, or other noncompliance, the auditors must place their findings in proper perspective. To give the reader a basis for judging the prevalence 7 This step is required for audits of compacts and related agreements that present cost-sharing budgets on an annual basis and for closeout audits of awards that present cost-sharing budgets on a life-of-project basis. See paragraphs 4.12 and 4.13 of the MCC Audit Guidelines. Revised January 2006 17 This is trial version www.adultpdf.com and consequences of these conditions, the instances identified must be related to the universe or the number of cases examined and quantified in terms of U.S. dollar value, if appropriate. In presenting material fraud, illegal acts, or other noncompliance, auditors must follow the reporting standards contained in Chapter 5 of U.S. Government Auditing Standards. Auditors may provide less extensive disclosure of irregularities and illegal acts that are not material in either a quantitative or qualitative sense. Chapter 4 of U.S. Government Auditing Standards provides guidance concerning factors that may influence auditors' materiality judgments. If the auditors conclude that sufficient evidence of irregularities or illegal acts exist, they must contact the MCC Inspector General and exercise due professional care in pursuing indications of possible irregularities and illegal acts so as not to interfere with potential future investigations and/or legal proceedings. F. the schedule of computation of indirect cost rate (see Example 6.3 of the MCC Audit Guidelines) and the auditor's report on the schedule of indirect cost rate. This must be a separate report prepared in accordance with guidance set forth in SAS No. 29. (AU551), (see Example 7.4 of the MCC Audit Guidelines). [This schedule and report are not required if MCC-(country name) does not have an indirect cost rate authorized by MCC.] G. MCA-(country name)’s general-purpose financial statements on an organization-wide basis and the auditor's report on them. These statements and the report on them only apply to recipients with an indirect cost rate that needs to be audited, unless the MCC specifically requests that the statements be audited. H. the auditor's comments on the status of prior audit recommendations. The auditors must review and report on the status of actions taken on findings and recommendations reported in prior audits and any pre-award survey recommendations. When corrective action has not been taken and the deficiency remains unresolved for the current audit period and is reported again in the current report, the auditors need only briefly describe the prior finding and show the page reference where it is included in the current report. If there were no prior findings and recommendations, a note to that effect must be included in this section of the audit report. The findings contained in the reports on internal controls and compliance related to MCC-funded programs must include a description of the condition (what is), the criteria (what should be), the cause (why it happened), and the effect (what harm was caused by not complying with the criteria). In addition, the findings must contain a recommendation that corrects the cause and the condition, as applicable. It is recognized that material internal control weaknesses and noncompliance found by the auditors may not always have all of these elements fully developed, given the scope and objectives of the specific audit. The auditors must, however, at least identify the condition, criteria and possible effect to enable management to determine the cause and take timely and proper corrective action. Findings which involve monetary effect must: 1. Be quantified and included as questioned costs in the fund accountability statement, the Auditor’s Report on Compliance, and cost-sharing schedule (cross-referenced). 2. Be reported without regard to whether the conditions giving rise to them were corrected. 3. Be reported whether MCA-(country name) does or does not agree with the findings or Revised January 2006 18 This is trial version www.adultpdf.com questioned costs. 4. Contain enough relevant information to expedite the audit resolution process (e.g., number of items tested, size of the universe, error rate, corresponding U.S. dollar amounts, etc.). The reports must also contain, after each recommendation, pertinent views of responsible recipient officials concerning the auditor's findings and actions taken by MCA-(country name) to implement the recommendations. If possible, the auditor should obtain written comments. When the auditors disagree with management comments opposing the findings, conclusions, or recommendations, they should explain their reasons following the comments. Conversely, the auditors should modify their report if they find the comments valid. Any evidence of fraud, illegal acts or abuse that have occurred, or are likely to have occurred, must be included in a separate written report if deemed necessary by the MCC Inspector General. This report must include an identification of all questioned costs as a result of abuse, irregularities or illegal acts, without regard to whether the conditions giving rise to the questioned costs have been corrected or whether MCA-(country name) does or does not agree with the findings and questioned costs. VI. INSPECTION AND ACCEPTANCE OF AUDIT WORK AND THE REPORT The statement of work, audit program (including detailed audit steps) and the draft and final reports will be subject to approval and acceptance by the MCC Inspector General. After approval, the draft report will be discussed with the responsible officers of MCA-(country name). The MCC Inspector General is responsible for assuring that the work performed under this statement of work complies with U.S. Government Auditing Standards and the “Millennium Challenge Corporation Guidelines for Financial Audits Contracted by Foreign Recipients” issued by the MCC Inspector General (IG). To accomplish this objective, the MCC Inspector General will perform desk reviews on every draft audit report, and may review audit documentation files prior to approving draft audit reports or perform quality control reviews of the audit documentation files after the fact. For the IG’s review of audit documentation files, the audit firm must ensure that all audit records related to the audited agreements are available to enable IG auditors to accomplish and support their review. To this end, the IG auditors must have access to all pertinent audit documentation files and records of MCA-(country name) and their Covered Providers and make excerpts, photocopies, and transcripts. If the MCC Inspector General does not accept the report because of deficiencies in the work, the audit firm must perform any additional audit work requested at no additional cost. VII. RELATIONSHIPS AND RESPONSIBILITIES While the compact agreement is between the MCC and the host country, and MCA-(country name) as the host country’s implementing entity, in order for the MCC Inspector General to exercise its quality control responsibilities over audits of U.S. funds, the client for this contract is the MCC Inspector General (IG). The IG program coordinator for this contract is [name of person, telephone Revised January 2006 19 This is trial version www.adultpdf.com number and email address]. The audit firm will work in coordination with [name and title of designated person within the office of the MCC country representative or any other representative the MCC may determine]. The liaison for audit concerns will be [name and title] of the MCC Inspector General or his/her designee, and the liaison for information and assistance from the MCC will be the MCC country representative or his/her designee. The MCC country representative may meet with the public accounting firm at the beginning of the audit to explain any financial/compliance areas of concern contained in the statement of work that they want emphasized and provide any advice concerning the performance of the audit. The MCC country representative shall provide the following information to the auditors for the entrance conference: 1. a list of all disbursements and redisbursements made by the MCC to MCA-(country name) under the compact; and 2. a list of all MCC payments to third parties for assets, equipment, materials, and technical assistance for the period being audited with copies of vouchers with supporting documentation; MCC may also provide written comments on the draft audit report concerning the facts and conclusions contained in the report in order to obtain the best possible end product. The MCC country representative may also attend the exit conference for the same purpose. However, the MCC country representative comments on the draft report and at the exit conference will not be binding on the public accounting firm. The public accounting firm must properly maintain and store the audit documentation files for a period of five years from the completion of the audit. During this five-year period the audit firm must immediately provide the audit documentation files when requested by the MCC Inspector General. Public accounting firms that are nonresponsive or do not provide timely responses to questions raised by the MCC country representative or MCC Inspector General shall be temporarily or permanently excluded from performing additional audits of MCC-funded programs. VIII. TERMS OF PERFORMANCE The effective date of this contract will be the date of the signature of MCA-(country name)’s authorized representative. The audit must begin as soon as practicable after the signing of the audit contract, and from the audit start date, the audit firm must submit to MCC Inspector General: (a) a complete audit program in writing within 20 calendar days, (b) an indexed draft audit report in English within 21 calendar days following the end of the audited period, and (c) a final audit report that includes revisions incorporating MCC Inspector General comments within 90 calendar days after the end of the audit period. It is the responsibility of MCA-(country name) to ensure that all records are available, all accounting entries and adjustments are made, and all other necessary steps are taken to make it possible for the audit firm to perform the work necessary to be able to present the final audit report to the MCC Inspector General within 90 calendar days after the end of the audited period. In order Revised January 2006 20 This is trial version www.adultpdf.com for the audit firm to meet this compact requirement, MCA-(country name) will need to close its books and have its fund accountability statement ready for audit within 14 calendar days after the audit cutoff period. Further, in order to deliver the final audit report to the MCC Inspector General within 90 calendar days after the audit cutoff period, the audit firm will need to have conducted interim testing well before the audit cutoff date and begin final testing while MCA-(country name) is still in the process of closing its accounting records. Payment will be as follows: 20 percent on the date of this contract, 40 percent after approval of the draft report by the MCC Inspector General and 40 percent on the date the MCC Inspector General approves the final report. [Payment terms could differ. However, a significant percentage of the payment should be retained until the IG approves the final report.] No payments should be made without the approval of the MCC Inspector General. Revised January 2006 21 This is trial version www.adultpdf.com . responsible officers of MCA-(country name). The MCC Inspector General is responsible for assuring that the work performed under this statement of work complies with U.S. Government Auditing Standards. beginning of the audit to explain any financial/ compliance areas of concern contained in the statement of work that they want emphasized and provide any advice concerning the performance of the. permanently excluded from performing additional audits of MCC-funded programs. VIII. TERMS OF PERFORMANCE The effective date of this contract will be the date of the signature of MCA-(country name)’s